From equilibrium to disequilibrium: the genesis of Don Patinkin's interpretation of the Keynesian theory

Abstract

This paper explains the reasons that led Don Patinkin to interpret the Keynesian theory in a disequilibrium perspective. We claim that the author adopted this position because he believed that the assumption of wage rigidity misrepresented the concept of involuntary unemployment and that, consequently, it had to be rejected. It is shown that this conclusion resulted from the confrontation of Patinkin, during the writing of his Ph.D. thesis, with the interpretations of the Keynesian theory argued respectively by Lange, Klein and Modigliani.Patinkin, Disequilibrium, Neoclassical Synthesis, Macroeconomics, Wage Rigidity,

Macroeconomic dynamics at the Cowles Commission from the 1930s to the 1950s

“…Marschak (1951a) was noteworthy for its contents, not just for being the first graduate macroeconomics textbook. As Boianovsky (2002), and Rubin (2002) note, Marschak's lectures on AD-AS, demand constraints and the short side rule (1951a), together with his articles on money demand and money illusion (1949a, 1950a), his supervision and the seminars he organized influenced his Chicago doctoral student Don Patinkin, particularly the papers he wrote at the Cowles Commission before moving to the Hebrew University of Jerusalem in 1949 (Patinkin 1947(Patinkin , 1948b(Patinkin , 1948c(Patinkin , 1949b, after abandoning an abortive thesis topic on the interwar US manufacturing sector . Interactions with Trygve Haavelmo and Lawrence Klein at the Cowles Commission also influenced Patinkin, as did their writings (especially Haavelmo 1950 andKlein 1947, see also Haavelmo 1941, Leeson 1998, so the environment Marschak created at Cowles was crucial for Patinkin's formation as a monetary theorist and macroeconomist, although the disequilibrium interpretation of Keynes in Patinkin (1956) was a move beyond and away from Marschak (1951a), discarding Marschak's use of the concept of money illusion.…”

Keynes after Sraffa and Kaldor: Effective Demand, Accumulation and Productivity Growth

“…Yet, in a somewhat contradicting view Keynes argues that there is no '…material difference … between [his] schedule of the marginal efficiency of capital … and the termed unemployment disequilibrium. For a discussion of Patinkin's views and his rejection of the neoclassical synthesis emphasis on wage rigidity see Rubin (2002). 5 For a modern interpretation along these lines that emphasizes the role of expectations, confidence and psychological factors in explaining the instability of the economic system see Akerlof and Shiller (2009).…”

Patinkin on IS-LM: An Alternative to Modigliani

“…Therefore, it had to be inferred that the excess demand for bonds was also homogeneous of degree zero. In this case, Modigliani's object was "the dynamic workings of an economy in disequilibrium" (Patinkin 1956, 224; on the origin of this aspect of Patinkin's thought, see Rubin 2002a and2002b). Obviously, IS-LM was not an appropriate vehicle for this conception.…”